* FTSE up 0.4 percent
* Banks rally as UBS adds Lloyds to key call list
* ARM gains as Microsoft showcases IE 10 on ARM processor
By David Brett
LONDON, April 13 (Reuters) - Britain's top share index rebounded on Wednesday as banks gained, with Lloyds Banking Group rising after UBS added the bank to its list of top picks.
Lloyds climbed 1.3 percent, having trading traded at nine month lows and below its 20-day moving average, after the Independent Commission on Banking (ICB) proposed the sale of sale hundreds more of its branches.
"The ICB report published earlier this week has contributed to underperformance in Lloyds shares versus its domestic peers," UBS said.
"With the shares trading at little more than historic tangible book value, downside scenarios are now more than priced in leaving the risk/reward firmly in investors favour."
Banks were the top performing sector among London's blue chip stocks. U.S. peer JPMorgan Chase & Co is due to report first-quarter earnings at 1100 GMT.
By 0806 GMT, the FTSE 100 was up 25.37 points, or 0.4 percent at 5,989.84, having closed down 1.5 percent at 5,964.47 on Tuesday.
Investors had retreated from miners and energy stocks and other riskier assets in the previous session after Goldman Sachs the recent rise in commodity prices had run its course, and concerns resurfaced over global growth prospects being dented by Japan's earthquake.
"We're seeing investors buying back in on the dips but the lack of volume remains a concern, suggesting any rally lacks real support," Jimmy Yates, head of equities at CMC Markets said.
The FTSE had traded just 12.7 percent of its already subdued average 90-day volume in early trade.
Technical analysts said the most important feature of Tuesday's decline was the fact that it took the index back through the uptrend that began after last month's lows.
"Since it is hard to escape the impression that it is failing at resistance (5091); if that really is the case the outlook for the FTSE would become uncertain on a near term view, with a strong chance of a drop back to 5790 or lower," a technical analyst said.
MINER CONCERNS
Global miner Rio Tinto fell 0.4 percent in early trade after a production update.
Rio's 76 percent owned subsidiary, Australia's Coal and Allied , reported an 18 percent drop in first-quarter coal production and said it expects sales to Japan to drop off due to last month's earthquake and tsunami.
Miners were mixed, with Fresnillo up 2.4 percent after the Mexican precious metals miner said it would meet 2011 silver production targets, while Gold output jumped.
Integrated oils rallied. BP gained 0.7 percent. Russia's Rosneft said the April 14 deadline for the BP share swap has not been extended, and no talks were under way.
Elsewhere, chip designer ARM Holdings bounced 4 percent with traders citing a the impact of a bullish note from Morgan Stanley.
Following a presentation by Microsoft in Las Vegas, showcasing a version of Internet Explorer 10 running on an ARM-based processor, traders said the broker was "positively surprised that software development is already well advanced".
Reckitt Benckiser rose 2 percent after Bernstein lifted its rating on the consumer goods group and JPMorgan raised its earnings estimates, arguing the valuation is compelling.
On the downside, analysts cited technical reasons for Insurer Old Mutual's 2.6 percent fall as the firm's shares hit overbought territory at the close of the previous session, having gained around 15 percent since last month's lows.
"The 14-day RSI has reached extremely overbought levels and, at the same time, volumes have started to fall away, suggesting that participation in the rally is diminishing," analysts at Charles Stanley said.
Ex-dividend factors knocked 2.43 points off the FTSE 100 index on Wednesday, with Aggreko, BG Group, Capita, IMI, Old Mutual, Tullow Oil, and John Wood Group all trading without their payout attractions. (Additional reporting by Tricia Wright, Editing by Louise Heavens)